Import VAT in dropshipping: definition and operation

Contents

Dropshipping is an e-commerce trend that is currently gaining ground. To better understand its principle, it is important to remember that dropshippers sell products that they do not have in stock. As with any commercial activity, it inevitably involves the issue of VAT. What is import VAT in dropshipping? 

Import VAT, a simple definition 

When buying goods in a country other than the EU, we have to pay the VAT of the country concerned. If you are a VAT-registered entrepreneur, for example, it will be possible to reclaim it later as deductible VAT. In the case of products from a third country, i.e. a country outside the EU, import VAT will be applied. This must be paid to the customs authorities. 

In reality, import tax is not so different from value added tax. The latter is charged on goods or services sold within the EU. These are known as intra-Community acquisitions. In this context, the rules for VAT taxation will depend on the country of taxation, which will be determined according to the status of the buyer and the nature of the transaction. The same principle applies to the issue of dropshipping and VAT. To be really in context, let's take the example of a product imported from Germany and delivered to France. It will be the buyer in France who will pay the VAT according to French regulations. To do this, he will need the intra-Community VAT number. 

  • Who is liable for import VAT? 

Import VAT will be charged to the buyer or final customer, whether a private individual or a company. If the latter also handles the delivery, it must advance the tax and then reclaim it from the customer. In dropshipping, particular attention must be paid to this tax when the goods come from a third country or outside the EU. In this case, the import tax will be entirely at the expense of the final customer, who will have to pay it to the customs authorities. 

Import VAT in dropshipping: some reforms to remember 

Previously, when a product costing less than €22 had to pass through customs, it was not subject to import VAT. But from 30 June 2021, all dropshipping products will have to pay tax, even for goods from outside the EU that cost less than €150. This is to better regulate VAT for dropshipping imports and to avoid fraud. 

As a dropshipping merchant, you must charge your buyer the VAT of the country of delivery. It will be 20% in France, 19% in Germany, etc. It is to be determined according to the country of the customer ordering the item. In order to pay your taxes correctly in your dropshipping business, you essentially need to register with the IOSS (Import One Stop Shop). If you are not in an EU country, you need to go through an intermediary such as companies specialising in tax, customs and accounting solutions like Eurofiscalis. 

As a dropshipper, do I have to pay tax on sales to customers? 

As a rule, a dropshipper does not need to pay customs duties, a detail that is usually left to the end customer. But it also does not exist if the buyer is domiciled in a European country and orders a product in the EU. Your dropshipping business will be easier if you choose to source your goods from an EU country and register your business in the EU. This way you will not have any unhappy customers. 

For the payment of import VAT in dropshipping, there are two possible cases:

  • Dropshipping company located in the EU: 

If you are in the EU, you must charge VAT on every sale you make. However, the tax rate will vary depending on the quantity of goods you sell each year. In particular, you should refer to the distance selling threshold to determine whether you should apply the VAT of the country where you are located or that of the customer. 

  • Dropshipping company located outside the EU: 

In this case, in order to be able to import properly and collect tax every time you exceed the threshold, you must register for EU VAT. 

When operating as a dropshipping self-employed entrepreneur, you should pay attention to the rules applicable to distance selling in the EU to avoid having upset customers. It is also advisable to check the tax policy of each state to ensure that you are fully compliant. 

In any case, before starting a dropshipping business, you should be clear about import duties dropshipping. These are the import duties in dropshipping. There are some exceptions to this which are not always obvious and which it is essential to analyse closely. 

Conclusion 

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